Types of acceptable collateral for secured loans

| Jan 24, 2021 | Business Litigation |

Secured debt allows for creditors to reduce their risk when loaning out money, but not all collateral takes the same form. When people default on their debts, creditors may seize the collateral pledged in the contract in order to resell it and avoid a total loss. Any creditor in Ohio has a wealth of options to consider when valuing and collecting on a contract’s collateral. 

Depending on the contract, just about anything might qualify as collateral—especially in the world of commercial contracts where state and federal oversight has fewer regulations. 

Standard forms of collateral

Most people may think about a bank repossessing a car or foreclosing on a house when they hear the word collateral. According to Ohio’s Secretary of State, security interests may include property or fixtures like those. Security interests include policies and investment accounts in margin trading as well. For example, a broker may seize a whole investment account if shares decrease in value and the original contract designated the account as a security interest—whatever remains in the balance helps with the original loan. 

Nonstandard forms of collateral

So long as a debtor owns property, that property may act as collateral, and this extends to some bizarre examples. The Secretary of State details property like farm equipment and watercraft. According to Key Credit Repair, debtors have acquired secured loans with collateral like domain names, artisanal cheeses and even soccer contracts of major players. 

Processes for securing collateral

How does someone arrange to sell a purebred racehorse for a secured loan? That all comes down to drafting the right agreement between the right parties. Any repossession might be a hassle and it is up to creditors to have the right arrangements and paperwork prepared for a smooth transition of property and value.